20210226-招银国际-碧桂园服务-06098.HK-Acquisition_of_Languang__more_positive_on_lower-than-expected_purchase_price_4页_834kb

CMB International Securities | Equity Research | Company Update Summary

Core Content Overview

This document is an equity research update on CG Services (6098 HK), focusing on the recent acquisition of Languang Jusbon (2606 HK). It provides an analysis of the deal's implications for CGS, Languang Jusbon, and the broader property services sector, along with financial data, key ratios, and investment ratings.

Key Points of the Acquisition

• Deal Details: CGS will acquire 64.62% of Languang Jusbon's shares from its parent company, Sichuang Languang Development (600466 CH), for a total consideration of RMB4.85bn (equivalent to RMB42.1/share or HK$50.7/share).
• Price Context: The acquisition price is a 30% premium over Languang Jusbon's last trading price, which is lower than market expectations.
• Strategic Implications for CGS:
  • Geographic Expansion: Languang Jusbon's strong presence in the Southwest region (60% of managed GFA) will help CGS, which currently holds only 3% of the region's market.
  • Financial Impact: The deal could boost CGS's 2021/22E earnings by 20% if the full acquisition is completed.
  • Valuation: The purchase price is equivalent to 7x 2022E PE, which is considered value accretive.
  • Balance Sheet: CGS has raised HK$7.7bn in December 2020, ensuring sufficient liquidity to support the full acquisition.

Impact on Languang Jusbon

• Privatization Uncertainty: The acquisition may trigger a general offer, but privatization is uncertain due to:
  • The 30% premium may not be attractive enough to remaining shareholders (e.g., Chairman Yao and Orient Fund).
  • Chairman Yao may choose to retain his stake as part of an incentive.
  • Minority shareholders may hesitate to sell due to potential accelerated growth under CGS's support.
• Reason for Sale: The parent company's decision to sell is likely influenced by debt structure improvements under the "three red line" policy.

Financial Highlights

Earnings Summary (YE 31 Dec)

Key Ratios

Shareholding Structure

Investment Recommendation

• CMBIS Rating: BUY
• Target Price: HK$84.60
• Current Price: HK$67.00
• Upside Potential: +26.3%

Stock Data

CMBIS Ratings Definitions

• BUY: Potential return of over 15% over next 12 months.
• HOLD: Potential return of +15% to -10% over next 12 months.
• SELL: Potential loss of over 10% over next 12 months.
• NOT RATED: Not rated by CMBIS.
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.
• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark.
• UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark.

Analyst Certification & Disclosures

• The research analyst certifies that the views expressed reflect their personal views and that no compensation is tied to the report's content.
• The analyst confirms that they have not traded in the stock covered in the report within 30 days prior to the report's issue and will not do so for 3 business days after.
• The report is not an offer or solicitation to buy/sell any security and is intended solely for CMBIS clients.

Risk Disclaimer

• There are risks involved in trading any securities.
• The report is not tailored to individual investors and should not be used as investment advice.
• Past performance does not indicate future results.
• The value of investments may fluctuate due to market conditions and other factors.
• CMBIS does not guarantee accuracy or completeness of the information.

Additional Notes

• The report is subject to change without notice.
• CMBIS may issue other reports with different conclusions.
• The report may be used only by intended recipients and is not to be reproduced or distributed without written consent.
• There are regulatory restrictions for recipients in the UK, US, and Singapore.